Selecting the right trust for you
It is essential to understand what sets apart the various kinds of wills and trusts, as this will assist you in selecting the most suitable type to fulfill your financial objectives. Understanding the differences between a living trust and a testamentary trust and the differences between a revocable and an irrevocable trust is important. Regardless of the trust, they may be able to help you avoid probate, obtain tax advantages, safeguard assets from creditors, and exercise control over assets. Here are some things to think about.
- What is a Trust?
- Benefits of Trusts
- What are the types of Trusts?
- Find yourself an estate planning attorney.
The information included in this article will teach you all you need to know about trust and how to set up a trust for yourself when the time is perfect.
What is a Trust?
A trust is a legal structure that involves a third party, referred to as a trustee, to hold assets for a beneficiary or group of beneficiaries. The person who establishes the trust is the trustor, the settlor, or the grantor. As for an irrevocable trust, the heirs may refer to the trustor as a benefactor. Trusts are a popular estate planning instrument that is used to transfer assets from one person to another.
Inside trusts, many arrangements may be made, and various types of trusts to choose from. The sort of trust employed is determined, among other things, by the aims and financial priority preferences of the trustor or donor. If you have any other legal matters to discuss, you might consider speaking with one of our St. George estate planning attorneys.
The Difference Between a Living Trust and a Testamentary Trust
The following comparisons will help you better grasp the different forms of trust:
- living trusts vs. testamentary trusts and
- revocable living trusts vs. irrevocable living trusts.
Knowing these will help you better comprehend the various types of trusts.
The two fundamental kinds of trusts are produced in the manner suggested by their names:
A living trust, also known as an inter vivos trust, is a trust that is established when the grantor is still alive. A living trust’s primary goal is to transfer assets to beneficiaries quickly. This is accomplished by establishing a living trust, which eliminates the need for probate, which is the court-supervised process for allocating assets after death. Probate avoidance may save time and money on court costs, as well as possibly lowering estate taxes for beneficiaries.
Testamentary Trust: A testamentary trust is established after death under your last will and testament. A testamentary trust is more flexible and a lot simpler compared to a living trust. This is because a testamentary trust is made based on your living will, which you may modify while you’re still alive.
The Difference Between a Revocable and an Irrevocable Trust
A trust may be either irrevocable or revocable, depending on the circumstances. Listed below are the fundamentals as well as the primary distinctions between revocable and irrevocable trusts:
Revocable Trust: A revocable trust, sometimes known as a living trust, is established if the grantor is still alive. The trust’s name aligns with the reality that a grantor may alter his wishes while still alive. The primary aim of a revocable trust is to avoid the need for probate when assets are transferred after a person’s death.
It is possible to change the provisions of an irrevocable trust after they have been established, in contrast to a revocable trust. The primary reason for establishing an irrevocable trust is to allow the trust maker, also known as the beneficiary, to move assets out of their taxable estate. The income from the assets is no longer taxable during the benefactor’s lifetime, and the assets are no longer taxable to the benefactor’s estate after their death.
What are the Types of Trusts?
Trusts may be divided into four categories: living trusts, testamentary trusts, revocable trusts, and irrevocable trusts. There are, however, other divisions that include a variety of words and possible advantages.
Most kinds of trusts that are utilized in estate planning are the ones listed below. It’s essential to remember that a variety of trusts and customized arrangements aren’t included here but may be suitable for your circumstance.
According to general definitions, a charitable trust is an irrevocable trust established to benefit the trust creator, their beneficiaries, and a qualified charity as defined by the IRS. A charity-lead trust (CLT) is one of the most common kinds of charitable trust, the other being a charitable remainder trust (CRT) (CRTs).
Charitable Lead Annuity Trust
Known as a charitable lead annuity trust (CLAT), this trust was formed to give financial assistance to the designated charity or organizations via the payment of annuities for a certain length of time. Eventually, the residual assets are distributed to the recipients.
Trust for Charitable Remainder
This trust, also known as a charity remainder annuity trust (CRAT), operates in the opposite way of a charitable lead trust (CLT). In exchange for an annuity for a defined length of time, a CRAT may generate income for you and your beneficiaries, with the remaining assets being donated to charity.
Qualified Terminable Interest Property Trust
In the event of the death of a spouse, a qualified terminable interest property (QTIP) trust is established to provide income to the surviving spouse while allowing the grantor to retain control over assets. Qualified terminable interest trusts (QTIPs) may be advantageous when beneficiaries from a previous marriage exist, and the grantor passes on before the succeeding spouse.
Grantor Retained Annuity Trust
It is possible to reduce the amount of taxes due on significant financial gifts given to a loved one or other beneficiaries via the use of a grantor retained annuity trust (GRAT), which is an irrevocable trust established for this purpose. The trustee is responsible for paying the taxes on the assets when the trust’s establishment and gets an annual annuity payment for the duration of the trust’s existence. The remaining assets are allocated to the recipients at the end of the specified term.
Irrevocable Life Insurance Trust (Irrevocable Life Insurance Trust)
However, in the case of a wealthy individual’s death, a benefit from a life insurance policy may be included in the estate for tax reasons, even though life insurance earnings are often excluded from probate. Using an irrevocable life insurance trust (ILIT) may help keep life insurance profits out of taxable estates while also guaranteeing that the benefit of the death is paid as soon as possible to the intended beneficiaries.
Irrevocable Funeral Trust
It is possible to put money aside for funeral and burial expenses via establishing an irrevocable funeral trust. The funeral home may act as a trustee on occasion. Financial resources used to finance funeral trusts are usually bonds, life insurance, or cash. Because state laws differ, you may consider contacting a reliable St. George attorney regarding your alternatives.
Trust for the Spendthrifts
Beneficiaries can become financially irresponsible. Therefore a spendthrift trust is used to safeguard their inherited assets. The beneficiary and the beneficiary’s creditors do not have direct access to or control the trust assets since they are owned by and managed by the trust. The trustee has the authority to decide how the trust assets will be dispersed, subject to certain limitations. For instance, the trustee may decide on a certain monetary amount yearly or specify how the beneficiaries should use the money.
Trust for People with Disabilities
A special needs trust, similar to a spendthrift trust, allows the trustee to decide and direct how the trust’s assets are used to benefit a beneficiary who has special needs. They are often used for dependents with special requirements, such as a disabled child, sibling, or parent who cannot support themselves financially or who are otherwise unable to do so.
As the name suggests, a generation-skipping trust will bypass the grantor’s children and pass on to the offspring of the generation after them. For example, if you want to ensure the financial security of your grandkids, you may create a trust that will transfer straight to them as your successors when you pass away.
A Totten trust, also known as a payable on death account, is a less complicated type of trust that allows a beneficiary to receive the trust’s assets immediately following the grantor’s death. During their lifetime, the grantor can make additions to or withdrawals from the trust. Additionally, if the donor feels it is necessary or desirable, they may change the beneficiary.
Benefits of Trusts
Trusts have several advantages.
When it comes to estate planning, there are a variety of reasons to consider using a trust. The following are some of the most frequent advantages:
- You may avoid probate by doing the following: Assets that are left to beneficiaries often pass through probate, which is a legal procedure that can be time-consuming and costly. It is possible to save time and money for your heirs by avoiding probate, and it is also possible to preserve your family’s privacy.
- Respect for your privacy: Trusts may assist you in maintaining your privacy since they do not necessarily become public records.
Certain kinds of trusts permit the transfer of assets out of an estate, resulting in significant savings in estate and gift taxes for the beneficiaries.
- Protect Your Assets From Creditors: Moving assets out of your estate may have a similar effect to transferring assets into your estate in terms of limiting creditors’ access to them and shielding them from judgments against you, similar to the tax advantage benefit.
- Inheritance and Distribution of Assets: By defining the rules of your trust, you may choose who will inherit your assets and when they will be distributed when you die.
- Children as Beneficiaries: If you want to designate your children as beneficiaries of your life insurance policy, you may do so via the use of a trust.
Requirements for creating a trust
A trust must fulfill three requirements, collectively referred to as “the three certainties,” to be lawfully and legally established:
Confidence in One’s Intention
For the trust to be valid, the settlor must expressly state that he wanted to establish a trust and transfer trust assets to the trustee, who would then retain the assets on behalf of the beneficiaries.
Confidence in the subject matter
Unambiguous identification of the property that forms part of the trust is required for the trust to be legal. The trustee must be able to identify with certainty the property that he is to hold on behalf of the beneficiaries to be effective.
Objects’ Confidence in Their Existence
The trust’s objectives and beneficiaries must be properly defined or readily ascertainable by the trustee for the trust to be valid.
A legitimate trust cannot be established if any of the three requirements are not met, and the assets remain the property of the putative settler.
Finding yourself an estate planning attorney
A trust may be a helpful estate planning instrument that offers a variety of advantages. On the other hand, a trust can get complicated, and it may not be suitable for everyone. It is essential to consult with a reliable Utah estate attorney to discuss the many advantages of trusts and decide whether a trust is the best option for you and your estate planning requirements.
Here at Boyack Christiansen Law Offices, we have the best estate planning lawyers in St. George, Utah. Call our Utah estate planning law firm today at 435-375-3960 to get your trust and estate planning done well and on time. We offer free consultation and some of the best legal advice!